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The Future of Pension Reform

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Rhode Island General Treasurer Gina Raimondo’s public pension reforms were a template for other states around the country. Now the changes are being derailed in court. The Wall Street Journal examines Raimondo’s current situation here
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RI General Treasurer, Gina Raimondo

In February, Ms. Raimondo and Governor Lincoln Chafee announced a deal with labor leaders to avert a trial. The proposed settlement maintained most of the reform’s structure but reduced the retirement age to 65 from 67 and allowed employees who have worked at least 20 years to keep their defined-benefit pensions. Public-safety workers were exempt from the hybrid plans but had their retirement age reduced to 50 from 55 and contributions increased by 2% of pay. Support from a majority of the legislature and each of the six classes of litigants was necessary to seal the deal.

Ms. Raimondo triumphantly declared that the compromise preserved 94% of the reform’s projected savings while union leaders claimed a symbolic victory because they forced the treasurer, who is running for governor, to the negotiating table. More than 70% of the 6,755 workers and retirees who cast ballots supported the deal. But a majority of police officers voted nay and sank the settlement. State and labor leaders have called off talks, and the judge has scheduled a trial for September 15, which is one week after the state’s primary elections.

State and labor leaders are under a gag rule, but we suspect labor leaders were never negotiating in good faith. In October the unions released a “forensic investigation” by pseudo-analyst Ted Siedle titled “Wall Street’s License to Steal” that accuses Ms. Raimondo of bilking pensioners to “enrich herself and her hedge fund backers.” Mr. Siedle told the Providence Journal that “the lesson of the failed settlement agreement is there shouldn’t be mediation with a liar.”

Unions are probably hoping that the litigation will doom Ms. Raimondo’s campaign for governor. They may also be gambling that they can avoid any benefit reductions if they prevail in court. However, this is a bet they can’t afford to win. The reforms have saved state and local governments $400 million this year alone and thousands of jobs. The reforms are the only barrier between many cities and bankruptcy when pensions could be slashed. Central Falls cut pensions by up to 50% in its 2011 bankruptcy.

While Judge Taft-Carter has opined that pensions are contractually guaranteed, the state’s Supreme Court has never ruled on the issue and federal courts have said states can impair contracts in certain circumstances. Whatever happens in court, the larger political lesson for government reformers is that public unions will never compromise until they are defeated in court and at the ballot box.

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E.J. Smith - Your Survival Guy

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E.J. Smith is the Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH, where he completed course-work in Practical and Defensive Handgun, Conceal Carry Pistol, Shotguns, Precision Scope Rifle and Kidnapping Prevention. E.J. plays a Yamaha Recording Custom drum set with Zilldjian cymbals. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@youngresearch.com. Sign up here to receive all the best content from Richardcyoung.com each week.